Microeconomics Quiz 1

allocate resources

the main role of a market is to...

demand

the maximum amount of a product that buyers are willing to purchase over some period at various prices (ceteris paribus)

Lindsay offers to buy more sticks of chewing gum at $1 than at $2.

Which statement illustrates the law of demand?

surplus

too much stuff is available (quantity supplied>quantity demanded)

prices

what sends signals in free-market economies

market demand

horizontal summation of all individual demand curves is...

rationality

how people make choices based on perceived benefits and costs

efficiency

how well resources are used and allocated

the price system

in a market based economy, scarce resources are allocated by...

markets

institutions that bring buyers and sellers together

how much of a product to produce

prices do NOT help consumers decide:

simplifying the model down to its basic relevant elements

the MOST common way in which economists model a problem is by:

equity

the fairness of various issues and policies (not often used in economics)

willingness to pay

the highest value that a consumer believes a good or service is worth is...

price

the only way to change quantity demanded

is the horizontal summation of individual demands

a market demand curve:

people exchange money for goods and services

a market exists when...

technology

a shift in the demand curve is NOT caused by:

horizontal summation

adding the # of units of the product that will be supplied and purchased at each price is...

normative question

addresses society's beliefs about what should or shouldn't happen (opinion/equity related)

law of supply

as prices increase, quantity supplied rises, and as price declines, quantity supplied falls

law of demand

as the prices of a good fall, the quantity demanded of that good rises (price goes up = quantity demanded goes down; vise versa)

positive question

can be answered by available info or facts (fact/efficiency based)

inferior good

demand decreases as income rises (ex: we will buy less ramen after we graduate college bc we can afford better food)

normal good

demand increases as income rises (ex: we will buy a nicer car if we get a raise/higher income)

1) tastes & preferences 2) income 3) prices of related goods (substitutes and complements) 4) # of buyers 5) future expectations

determinants of demand

1) new technology 2) cost of resources 3) price of related commodities (goods/services) 4) future expectations 5) # of sellers 6) taxes & subsidies

determinants of supply:

supply

maximum amount of a product that sellers are willing to be able to provide over some period at various prices (ceteris paribus) (this is also from the seller's perspective)

shortage

not enough stuff is available (quantity demanded>quantity supplied)

price is on the vertical axis and quantity demanded is on the horizontal axis

on a demand curve:

higher; rainy

people's willingness to pay for umbrellas is MOST likely _______ on a _____ day

differs; differs

willingness to pay _________ from person to person and __________ under varying circumstances